form10q.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
1O-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
OR
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF
1934
|
For the
transition period from ____________________ to
_____________________
Commission
file number 001-33365
USA
Technologies, Inc.
(Exact
name of registrant as specified in its charter)
Pennsylvania
|
|
23-2679963
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
100 Deerfield Lane, Suite 140, Malvern,
Pennsylvania
|
|
19355
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(610)
989-0340
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o Accelerated
filer o Non-accelerated filer
o Smaller reporting
company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).Yes o No x
As of
November 5, 2009, there were 22,725,908 shares of Common Stock, no par value,
outstanding.
TABLE OF
CONTENTS
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PAGE NO.
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Part I - Financial
Information
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Item
1.
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Condensed
Financial Statements (Unaudited)
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3 |
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4
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5
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6
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7
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Item
2.
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16
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Item
3.
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20
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Item
4T.
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20
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Part II - Other Information
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Item
2.
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21
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Item
3.
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21 |
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Item
5. |
Other Information |
22 |
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Item
6.
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22
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23
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Consolidated
Balance Sheets
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September
30,
|
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|
June
30,
|
|
|
|
2009
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|
2009
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
16,690,469 |
|
|
$ |
6,748,262 |
|
Accounts
receivable, less allowance for uncollectible accounts of
$59,000 and $42,000, respectively
|
|
|
1,541,307 |
|
|
|
1,468,052 |
|
Finance
receivables
|
|
|
664,723 |
|
|
|
212,928 |
|
Inventory,
net
|
|
|
1,699,519 |
|
|
|
1,671,226 |
|
Prepaid
expenses and other current assets
|
|
|
949,139 |
|
|
|
1,078,026 |
|
Total
current assets
|
|
|
21,545,157 |
|
|
|
11,178,494 |
|
|
|
|
|
|
|
|
|
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Finance
receivables, less current portion
|
|
|
253,471 |
|
|
|
121,624 |
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Property
and equipment, net
|
|
|
1,969,729 |
|
|
|
2,081,909 |
|
Intangibles,
net
|
|
|
4,586,453 |
|
|
|
4,845,053 |
|
Goodwill
|
|
|
7,663,208 |
|
|
|
7,663,208 |
|
Other
assets
|
|
|
105,869 |
|
|
|
90,090 |
|
Total
assets
|
|
$ |
36,123,887 |
|
|
$ |
25,980,378 |
|
|
|
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|
|
|
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Liabilities
and shareholders’ equity
|
|
|
|
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Current
liabilities:
|
|
|
|
|
|
|
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Accounts
payable
|
|
$ |
3,506,088 |
|
|
$ |
3,794,691 |
|
Accrued
expenses
|
|
|
1,814,929 |
|
|
|
1,393,356 |
|
Current
obligations under long-term debt
|
|
|
445,235 |
|
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|
494,850 |
|
Total
current liabilities
|
|
|
5,766,252 |
|
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|
5,682,897 |
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Long-term
debt, less current portion
|
|
|
283,318 |
|
|
|
325,209 |
|
Total
liabilities
|
|
|
6,049,570 |
|
|
|
6,008,106 |
|
|
|
|
|
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Commitments
and contingencies (Note 7)
|
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Shareholders’
equity:
|
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|
|
|
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Preferred
stock, no par value:
|
|
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|
|
|
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Authorized
shares- 1,800,000
|
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Series
A convertible preferred- Authorized shares 900,000;
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Issued
and outstanding shares- 505,241 and 510,270, respectively (liquidation
preference of $15,677,957 and $15,451,307, respectively)
|
|
|
3,578,948 |
|
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|
3,614,554 |
|
Common
stock, no par value:
|
|
|
|
|
|
|
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Authorized
shares- 640,000,000;
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Issued
and outstanding shares- 22,711,908 and 15,423,022,
respectively
|
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|
208,025,209 |
|
|
|
194,948,693 |
|
Accumulated
deficit
|
|
|
(181,529,840 |
) |
|
|
(178,590,975 |
) |
Total
shareholders’ equity
|
|
|
30,074,317 |
|
|
|
19,972,272 |
|
Total
liabilities and shareholders’ equity
|
|
$ |
36,123,887 |
|
|
$ |
25,980,378 |
|
|
|
|
|
|
|
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|
See
accompanying notes.
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USA
Technologies, Inc.
Consolidated
Statements of Operations
(Unaudited)
|
|
Three
months ended
September
30,
|
|
|
|
2009
|
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|
2008
|
|
Revenues:
|
|
|
|
|
|
|
Equipment
sales
|
|
$ |
1,937,407 |
|
|
$ |
2,038,915 |
|
License
and transaction fees
|
|
|
1,890,229 |
|
|
|
1,355,964 |
|
Total
revenues
|
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|
3,827,636 |
|
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|
3,394,879 |
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Cost
of equipment
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|
1,309,356 |
|
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|
1,433,844 |
|
Cost
of services
|
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|
1,488,157 |
|
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|
1,057,626 |
|
Cost
of sales
|
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|
2,797,513 |
|
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|
2,491,470 |
|
Gross
profit
|
|
|
1,030,123 |
|
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|
903,409 |
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|
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Operating
expenses:
|
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|
|
|
|
|
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|
Selling,
general and administrative
|
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|
3,565,778 |
|
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|
4,439,533 |
|
Depreciation
and amortization
|
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|
385,066 |
|
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|
418,779 |
|
Total
operating expenses
|
|
|
3,950,844 |
|
|
|
4,858,312 |
|
Operating
loss
|
|
|
(2,920,721 |
) |
|
|
(3,954,903 |
) |
|
|
|
|
|
|
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Other
income (expense):
|
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Interest
income
|
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|
14,938 |
|
|
|
127,966 |
|
Interest
expense
|
|
|
(20,416 |
) |
|
|
(26,958 |
) |
Total
other income (expense)
|
|
|
(5,478 |
) |
|
|
101,008 |
|
Net
loss
|
|
|
(2,926,199 |
) |
|
|
(3,853,895 |
) |
Cumulative
preferred dividends
|
|
|
(382,703 |
) |
|
|
(390,294 |
) |
Loss
applicable to common shares
|
|
$ |
(3,308,902 |
) |
|
$ |
(4,244,189 |
) |
|
|
|
|
|
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|
Loss
per common share (basic and diluted)
|
|
$ |
(0.17 |
) |
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
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|
Weighted
average number of common shares outstanding (basic and
diluted)
|
|
|
19,819,926 |
|
|
|
15,169,216 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
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|
Consolidated
Statement of Shareholders’ Equity
|
|
(Unaudited)
|
|
|
|
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|
Series
A
Convertible
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
Balance,
June 30, 2009
|
|
$ |
3,614,554 |
|
|
$ |
194,948,693 |
|
|
$ |
(178,590,975 |
) |
|
$ |
19,972,272 |
|
Issuance
of 7,285,792 shares of common stock at $2.00 per share less issuance costs
of $1,530,252
|
|
|
|
|
|
|
13,041,332 |
|
|
|
|
|
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|
13,041,332 |
|
Issuance
of 5,500 fully-vested shares of common stock to employees and vesting of
shares granted under the 2008 Stock Incentive Plan
|
|
|
|
|
|
|
40,574 |
|
|
|
|
|
|
|
40,574 |
|
Retirement
of 2,406 shares of common stock
|
|
|
|
|
|
|
(5,390 |
) |
|
|
|
|
|
|
(5,390 |
) |
Retirement
of 5,029 shares of preferred stock
|
|
|
(35,606 |
) |
|
|
|
|
|
|
(12,666 |
) |
|
|
(48,272 |
) |
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
(2,926,199 |
) |
|
|
(2,926,199 |
) |
Balance,
September 30, 2009
|
|
$ |
3,578,948 |
|
|
$ |
208,025,209 |
|
|
$ |
(181,529,840 |
) |
|
$ |
30,074,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
(Unaudited)
|
|
|
|
Three
months ended
|
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
Operating
activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,926,199 |
) |
|
$ |
(3,853,895 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Charges
incurred in connection with the vesting and issuance of common stock for
employee compensation
|
|
|
40,574 |
|
|
|
488,707 |
|
Charges
incurred in connection with the Long-term Equity Incentive
Program
|
|
|
77,258 |
|
|
|
197,423 |
|
Bad
debt expense (recovery)
|
|
|
15,970 |
|
|
|
(5,068 |
) |
Amortization
|
|
|
258,600 |
|
|
|
264,579 |
|
Depreciation,
$27,066 and $20,721 of which is allocated to cost of services for the
three months ended September 30, 2009 and 2008
|
|
|
153,532 |
|
|
|
174,921 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(89,225 |
) |
|
|
2,386,684 |
|
Finance
receivables
|
|
|
(583,642 |
) |
|
|
120,738 |
|
Inventory
|
|
|
(28,293 |
) |
|
|
315,740 |
|
Prepaid
expenses and other assets
|
|
|
199,099 |
|
|
|
(71,633 |
) |
Accounts
payable
|
|
|
(288,603 |
) |
|
|
(1,400,175 |
) |
Accrued
expenses
|
|
|
344,315 |
|
|
|
(379,152 |
) |
Net
cash used in operating activities
|
|
|
(2,826,614 |
) |
|
|
(1,761,131 |
) |
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment, net
|
|
|
(24,015 |
) |
|
|
(14,595 |
) |
Net
cash used in investing activities
|
|
|
(24,015 |
) |
|
|
(14,595 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Net
proceeds from the issuance (retirement) of common stock
|
|
|
13,035,942 |
|
|
|
(29,200 |
) |
Net
proceeds from the issuance (retirement) of preferred stock
|
|
|
(48,272 |
) |
|
|
- |
|
Repayment
of long-term debt
|
|
|
(194,834 |
) |
|
|
(197,785 |
) |
Net
cash provided by (used in) financing activities
|
|
|
12,792,836 |
|
|
|
(226,985 |
) |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
9,942,207 |
|
|
|
(2,002,711 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
6,748,262 |
|
|
|
9,970,691 |
|
Cash
and cash equivalents at end of period
|
|
$ |
16,690,469 |
|
|
$ |
7,967,980 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Prepaid
insurance financed with long-term debt
|
|
$ |
85,991 |
|
|
$ |
90,798 |
|
Cash
paid for interest
|
|
$ |
19,751 |
|
|
$ |
29,511 |
|
Equipment
acquired under capital lease
|
|
$ |
17,337 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes.
|
|
|
|
|
|
|
|
|
Notes to
Consolidated Financial Statements
1. Accounting
Policies
Business
USA
Technologies, Inc. (the “Company”, “We” or “Our”) was incorporated in the
Commonwealth of Pennsylvania in January 1992. The Company is a leading supplier
of cashless payment, remote management, reporting and energy management
solutions serving the unattended point of sale market. Our networked devices and
associated services enable the owners and operators of everyday, stand-alone,
distributed assets, such as vending machines, kiosks, personal computers,
photocopiers, and laundry equipment, the ability to offer their customers
cashless payment options, as well as remotely monitor, control and report on the
results of these distributed assets. As part of our Intelligent Vending®
solution, our Company also manufactures and sells energy management products
which reduce the electrical power consumption of vending related equipment, such
as refrigerated vending machines and glass front coolers, thus reducing the
electrical energy costs associated with operating this equipment.
Interim
Financial Information
The
accompanying unaudited consolidated financial statements of USA Technologies,
Inc. have been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and therefore should be read in conjunction with the Company’s Annual
Report on Form 10-K for the year ended June 30, 2009. In the opinion of
management, all adjustments considered necessary for a fair presentation,
consisting of normal recurring adjustments, have been included. Operating
results for the three-month period ended September 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2010. The balance sheet at June 30, 2009 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by U.S. generally accepted accounting principles for
complete financial statements.
The
Company has incurred losses from its inception through June 30, 2009 and losses
have continued through September 2009 and are expected to continue during fiscal
year 2010. The Company's ability to meet its future obligations is dependent
upon the success of its products and services in the marketplace and the
available capital resources. Until the Company's products and services can
generate sufficient operating revenues, the Company will be required to use its
cash and cash equivalents on hand, as well as raise capital to meet its cash
flow requirements including the issuance of Common Stock and the exercise of
outstanding Common Stock warrants.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
1. Accounting
Policies (Continued)
Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Stitch Networks Corporation
("Stitch") and USAT Capital Corp LLC (“USAT Capital”). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Cash and Cash
Equivalents
Cash and
cash equivalents represent all highly liquid investments with original
maturities of three months or less. Cash equivalents are comprised of
certificates of deposit and money market funds. The Company maintains its cash
in bank deposit accounts, which may exceed federally insured limits at
times.
Finance
receivables
The
Company offers extended payment terms to certain customers for equipment sales.
Through June 30, 2009 payment terms consisted of fixed term notes. During the
quarter ended September 30, 2009 the Company started offering customers the
Quick Start Program. In accordance with ASC Topic 840, “Leases”, agreements
under the Quick Start program qualify for sales-type lease accounting.
Accordingly, the future minimum lease payments are classified as finance
receivables in the Company’s consolidated balance sheets. Notes receivable or
Quick Start leases are generally for a 36 month term. Finance receivables are
carried at their contractual amount and charged off against the allowance for
credit losses when management determines that recovery is unlikely and the
Company ceases collection efforts. The Company recognizes a portion of the note
or lease payments as interest income in the accompanying consolidated financial
statements based on the effective interest rate method.
Inventory
Inventory
consists of finished goods and packaging materials. The Company's inventory is
stated at the lower of cost (average cost basis) or market.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
1. Accounting
Policies (Continued)
Income
Taxes
No
provision for income taxes has been made in the three months ended September 30,
2009 and 2008 given the Company’s losses in 2009 and 2008 and available net
operating loss carryforwards. A benefit has not been recorded as the realization
of the net operating losses is not assured and the timing in which the Company
can utilize its net operating loss carryforwards in any year or in total may be
limited by provisions of the Internal Revenue Code regarding changes in
ownership of corporations.
Loss
Per Common Share
Basic
earnings per share is calculated by dividing income (loss) applicable to common
shares by the weighted average common shares outstanding for the period. Diluted
earnings per share is calculated by dividing income (loss) applicable to common
shares by the weighted average common shares outstanding for the period plus the
dilutive effect (unless such effect is anti-dilutive) of potential common
shares. No exercise of stock options, stock purchase warrants, or the conversion
of preferred stock or cumulative preferred dividends was assumed during the
periods presented because the assumed exercise of these securities would be
anti-dilutive.
Shared-Based
Payment
The
Company applies ASC Topic 718 “Stock Compensation” which requires the
measurement of the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the award. The
Company recorded stock compensation expense of $40,574 and $488,707 related to
Common Stock grants and the vesting of shares previously granted to employees
and officers, excluding the Long-term Equity Incentive Program (the “LTIP
Program”), during the three months ended September 30, 2009 and 2008,
respectively. There were no common stock options granted, vested or recorded as
expense during the three months ended September 30, 2009 and 2008.
The
Company recorded stock compensation expense of $77,258 related to the vesting of
shares under the LTIP Program during the three months ended September 30, 2009.
The Company recorded stock compensation expense of $197,423 related to the
vesting of shares under the LTIP Program during the three months ended September
30, 2008. However, in February 2009 the fiscal 2009 year Program was deferred to
fiscal 2010 and compensation expense for the 2009 Program was
reversed.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
2. Finance
Receivables
Finance
receivables consist of the following:
|
|
September
30
|
|
|
June
30
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Notes
receivable
|
|
$ |
228,807 |
|
|
$ |
334,552 |
|
Lease
receivables
|
|
|
689,388 |
|
|
|
- |
|
Total
finance receivables
|
|
|
918,194 |
|
|
|
334,552 |
|
Less
current portion
|
|
|
664,723 |
|
|
|
212,928 |
|
Non-current
portion of finance receivables
|
|
$ |
253,471 |
|
|
$ |
121,624 |
|
3. Accrued
Expenses
Accrued
expenses consist of the following:
|
|
September
30
|
|
|
June
30
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Accrued
compensation and related sales commissions
|
|
$ |
581,495 |
|
|
$ |
318,792 |
|
Accrued
professional fees
|
|
|
456,809 |
|
|
|
439,759 |
|
Accrued
taxes and filing fees
|
|
|
218,397 |
|
|
|
206,875 |
|
Advanced
customer billings
|
|
|
136,382 |
|
|
|
101,942 |
|
Accrued
share-based payment liability
|
|
|
77,258 |
|
|
|
- |
|
Accrued
other
|
|
|
344,588 |
|
|
|
325,988 |
|
|
|
$ |
1,814,929 |
|
|
$ |
1,393,356 |
|
4. Long-Term
Debt
Long-term
debt consists of the following:
|
|
September
30
|
|
|
June
30
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Capital
lease obligations
|
|
$ |
518,903 |
|
|
$ |
580,383 |
|
Loan
agreements
|
|
|
209,650 |
|
|
|
239,676 |
|
Total
long-term debt
|
|
|
728,553 |
|
|
|
820,059 |
|
Less
current portion
|
|
|
445,235 |
|
|
|
494,850 |
|
Non-current
portion of long-term debt
|
|
$ |
283,318 |
|
|
$ |
325,209 |
|
As of
September 30, 2009, $86,154 and $0 of the current and long-term Finance
Receivables, respectively, are collateral for the outstanding balances of loans,
of which $35,644 and $0 is classified as current and long-term debt,
respectively.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
4. Long-Term
Debt (Continued)
During
July 2009, the Company financed a portion of the premiums for various insurance
policies totaling $85,991 due in nine monthly installments at an interest rate
of 5.1%. During July 2009, the Company also entered into a capital lease for
office equipment. The lease total of $24,837 is due in 48 monthly installments
at an interest rate of 12.1%.
5. Common
Stock
During
the three months ended September 30, 2009, the Company retired 5,029 shares of
its Preferred Stock it purchased on the open market at $9 per share for a total
of $48,272, including fees.
During
the three months ended September 30, 2009, and as permitted under his employment
agreement, an executive officer cancelled an aggregate of 2,406 shares of Common
Stock held by him in order to satisfy an aggregate of $5,390 of payroll tax
withholding obligations related to shares of Common Stock which vested during
January 2009.
On May
22, 2009, the Company filed a registration statement with the Securities and
Exchange Commission for a rights offering relating to transferable
subscription rights to purchase up to $15 million of common stock and warrants.
The proceeds from the rights offering are to be used for general corporate
purposes, including working capital and are available to finance the e-Ports
which may be utilized in the Quick Start Program.
Under the
rights offering, the Company distributed one right to each holder of record of
every share of its common stock that was held on the record date. Each right
entitled the holder to purchase one share of common stock at a subscription
price to be determined prior to the effective date of the registration statement
and a warrant that would entitle the holder to purchase one share of common
stock.
We also
distributed the transferable subscription rights to two of our warrant holders
who are entitled to participate in the rights offering pursuant to the terms of
the warrants held by them. Each such warrant holder received one
subscription right for each share of common stock into which the warrants are
exercisable as of the record date.
Holders
who fully exercised their rights were entitled, if available, to subscribe for
an additional amount of common stock and warrants in amount equal to up to 400%
of the shares of common stock and warrants for which such holder was otherwise
entitled to subscribe.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
5. Common
Stock (Continued)
The
Company engaged William Blair & Company and Maxim Group LLC to act as the
dealer-managers for the rights offering and MacKenzie Partners, Inc. to act as
the information agent.
On June
30, 2009, the Company announced the record date of the rights offerings as the
close of trading on The NASDAQ Global Market on July 10, 2009, at which time the
subscription price for the right was set at $2.50 per share and the exercise
price of the warrant at $2.75 per share. As a result of this pricing, the
maximum number of shares of common stock issuable upon exercise of the
subscription rights would be 6,000,000 shares and warrants to purchase up to
6,000,000 shares of common stock.
On July
13, 2009, the Company commenced the transferable subscription rights offering
pursuant to a Registration Statement on Form S-1 (No. 333-159467). Pursuant to
the rights offering, we distributed, at no charge to the holders of its common
stock as of 5:00 p.m., New York City time, on July 10, 2009, and at no charge to
two of its warrant holders who were entitled to participate in the rights
offering pursuant to the terms of the warrants held by such warrant holders,
transferable subscription rights to subscribe for shares of common stock and
attached warrants to purchase additional shares of common stock. The
subscription rights offering was scheduled to expire at 5:00 p.m., New York City
time, on July 31, 2009.
On July
17, 2009, the Company reduced the subscription exercise price of the
rights from $2.50 to $2.00 per right. As a result of this reduction, the
exercise price of the warrants, which will be issued in connection with the
exercise of the subscription rights, were also reduced from $2.75 to $2.20 per
share of common stock. Also as a result of this reduction, the maximum number of
shares of common stock issuable upon exercise of the subscription rights was
increased to 7,500,000 shares and warrants to purchase up to 7,500,000 shares of
common stock.
The
rights offering expired on July 31, 2009. On August 7, 2009, the closing date of
the rights offering, the Company received $14,571,584 of gross proceeds. The net
cash proceeds, after deduction of fees and expenses, including dealer-manager
fees, was $13,041,332. In addition, the Company issued a total of 291,432
warrants to the dealer-managers to purchase the Company’s Common Stock at $2.20
per share at any time through August 6, 2012.
In
accordance with the terms of the rights offering, the Company issued an
aggregate of 7,285,792 shares of common stock for $2.00 per share and 7,285,792
warrants, entitling the holder to purchase one share of common stock at the
exercise price of $2.20 per share of common stock commencing January 1, 2010 and
through December 31, 2011. The warrants commenced trading on August 7, 2009, on
the NASDAQ Global Market under the symbol USATW.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
5. Common
Stock (Continued)
During
September 2009, the Company entered into an Amended and Restated Employment
Agreement with Mr. Jensen and Mr. Herbert which replaced their prior employment
agreements. As part of the amendments, Mr. Jensen was granted 30,000 shares of
Common Stock under the 2008 Stock Incentive Plan valued at $1.75 per share which
vest as follows: 10,000 on October 1, 2009; 10,000 on April 1, 2010; and 10,000
on October 1, 2010; Mr. Herbert was also granted 9,000 shares of Common Stock
under the 2008 Stock Incentive Plan valued at $1.75 per share which vest as
follows: 3,000 on October 1, 2009; 3,000 on April 1, 2010; and 3,000 on October
1, 2010.
6. Common
Stock Warrants
As of
September 30, 2009, there were 10,608,087 Common Stock warrants outstanding, of
which 1,822,295 were exercisable at exercise prices ranging from $2.20 to $7.70
per share. In January 2010, 7,285,792 of the warrants will become exercisable at
$2.20 per share. The remaining 500,000 and 1,000,000 warrants expiring on
October 1, 2010 and October 1, 2011, respectively, are not exercisable until
minimum performance hurdles in the First Data Joint Marketing Agreement are
achieved.
7. Commitments
and Contingencies
Various
legal actions and claims occurring in the normal course of business are pending
or may be instituted or asserted in the future against the Company. The Company
does not believe that the resolution of these matters will have a material
effect on the financial position or results of operations of the
Company.
In
February 2009, the Company provided approval to a third party manufacturer of a
pre-production e-Port. At the time of approval, and per the terms of the
contract with the manufacturer, the Company is committed to purchase a certain
number of e-Ports for a maximum of $3,600,000 over an eighteen month period. As
of September 30, 2009, the remaining commitment is estimated at approximately
$2,500,000 based on our purchase order pricing accepted by the manufacturer less
the e-Ports purchased through September 30, 2009.
8. Subsequent
Events
The
Company has evaluated subsequent events through November 9, 2009, the date these
consolidated financial statements were filed, and determined that there were no
events or transactions occurring subsequent to September 30, 2009 that would
have a material impact on the Company’s consolidated financial statements and
that there were no events or transactions occurring subsequent to September 30,
2009 that would require disclosure, except for the disclosures made in this
Note.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
8. Subsequent
Events (Continued)
Effective
October 19, 2009, Stephen W. McHugh resigned as a director of the Company. Mr.
McHugh had been a member of the Audit Committee of the Board of Directors. On
October 19, 2009, the Board of Directors of the Company appointed Steven D.
Barnhart and Jack E. Price to serve as directors of the Company. Mr. Barnhart
was appointed to serve on the Audit Committee and Mr. Price was appointed to
serve on the Compensation Committee. Mr. Barnhart was appointed to fill the
vacancy resulting from Mr. McHugh’s resignation, and Mr. Price was appointed to
fill the vacancy resulting from the Board of Directors increasing the
number of directors from seven to eight members.
From 2007
until January 2009, Mr. Barnhart was the President and CEO of Orbitz Worldwide,
Inc., a publicly traded, online travel business. Prior thereto and since 2003,
Mr. Barnhart held various positions with Orbitz, including Chief Financial
Officer. From 1990 to 2003, Mr. Barnhart held various positions with PepsiCo,
Inc.
From 2007
through March 2009, Mr. Price was President and CEO of NovaRay Medical, Inc., a
medical imaging systems business. From 2003 to 2006, Mr. Price was the President
and CEO of VSM MedTech Ltd. From 1996 through 2003, Mr. Price was the President
and Division Chief Executive Officer of Philips Medical Systems, North
America.
Effective
October 19, 2009, the Board of Directors of the Company approved various
amendments to the Company’s Bylaws which became effective immediately. These
amendments include the following:
-
increasing the number of individuals serving on the Board of Directors from
seven to eight.
-
providing that any shareholder nominations for directors or any shareholder
business proposal must satisfy certain advance notice provisions in order to be
considered at the annual meeting. Prior to the foregoing amendment, a
shareholder could propose director nominees and certain business proposals
at the annual meeting without providing any advance notice to the
Company.
-
providing that special shareholder meetings may only be called by the Chairman
of the Board, Chief Executive Officer or Board of Directors, and that only such
business shall be conducted at the special meeting as shall be contained in the
Company’s notice of such special meeting. Prior to the amendment, shareholders
could call special meetings.
- if the
purpose of a special meeting is to elect directors, providing that any
shareholder nominations for directors must satisfy certain advance notice
provisions in order to be considered at such special meeting. Prior to the
amendment, a shareholder could propose director nominees at such special meeting
without providing any advance notice to the Company.
USA
Technologies, Inc.
Notes to
Consolidated Financial Statements
8. Subsequent
Events (Continued)
-
classifying the Board of Directors into three classes. The initial term of each
class of directors is as follows: Class I – until the first annual shareholders
meeting following election; Class II - until the second annual shareholders
meeting following election; and Class III - until the third annual shareholders
meeting following election. Following the initial term of each class of
directors, each class of directors shall be elected until the third annual
shareholders meeting following such election. Prior to the amendment, each
director served for a one year term and was elected at each annual
meeting.
On
October 19, 2009, the Company scheduled its 2010 annual shareholders meeting for
10:00 a.m. on Tuesday, December 15, 2009, at the Chester Valley Golf Club, 430
Swedesford Road, Malvern, Pennsylvania 19355. The record date for shareholders
entitled to notice of and to vote at the annual meeting is the close of business
on September 30, 2009. The business to be conducted at the meeting includes the
election of eight individuals to serve as directors of the Company. As provided
in the Bylaw amendment described above, the eight nominees will be divided into
three separate classes.
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward
Looking Statements
This Form
10-Q contains certain forward-looking statements regarding, among other things,
the anticipated financial and operating results of the Company. For this
purpose, forward-looking statements are any statements contained herein that are
not statements of historical fact and include, but are not limited to, those
preceded by or that include the words, “estimate,” “could,” “should,” “would,”
“likely,” “may,” “will,” “plan,” “intend,” “believes,” “expects,” “anticipates,”
“projected,” or similar expressions. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements. The
forward looking information is based on various factors and was derived using
numerous assumptions. Important factors that could cause the Company’s actual
results to differ materially from those projected, include, for
example:
|
●
|
general
economic, market or business
conditions;
|
|
●
|
the
ability of the Company to generate sufficient sales to generate operating
profits, or to sell products at a
profit;
|
|
●
|
the
ability of the Company to raise funds in the future through sales of
securities;
|
|
●
|
whether
the Company is able to enter into binding agreements with third parties to
assist in product or network
development;
|
|
●
|
the
ability of the Company to commercialize its developmental products, or if
actually commercialized, to obtain commercial acceptance
thereof;
|
|
●
|
the
ability of the Company to compete with its competitors to obtain market
share;
|
|
●
|
the
ability of the Company to obtain sufficient funds through operations or
otherwise to repay its debt obligations, or to fund development and
marketing of its products;
|
|
●
|
the
ability of the Company to obtain approval of its pending patent
applications;
|
|
●
|
the
ability of the Company to satisfy its trade obligations included in
accounts payable and accrued
liabilities;
|
|
●
|
the
ability of the Company to predict or estimate its future quarterly or
annual revenues and expenses given the developing and unpredictable market
for its products and the lack of established
revenues;
|
|
●
|
the
ability of the Company to retain key customers from whom a significant
portion of its revenues is derived;
|
|
●
|
the
ability of a key customer to reduce or delay purchasing products from the
Company; and
|
|
●
|
as
a result of the slowdown in the economy and/or the tightening of the
capital and credit markets, our customers may modify, delay or cancel
plans to purchase our products or services, and suppliers may increase
their prices, reduce their output or change their terms of
sale.
|
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements. Actual results or business conditions may differ materially
from those projected or suggested in forward-looking statements as a result of
various factors including, but not limited to, those described above. We cannot
assure you that we have identified all the factors that create uncertainties.
Moreover, new risks emerge from time to time and it is not possible for our
management to predict all risks, nor can we assess the impact of all risks on
our business or the extent to which any risk, or combination of risks, may cause
actual results to differ from those contained in any forward-looking statements.
Readers should not place undue reliance on forward-looking
statements.
Any
forward-looking statement made by us in this Form 10-Q speaks only as of the
date of this Form 10-Q. Unless required by law, we undertake no obligation to
publicly revise any forward-looking statement to reflect circumstances or events
after the date of this Form 10-Q or to reflect the occurrence of unanticipated
events.
Results
of Operations
Three
months ended September 30, 2009
Revenues
for the three months ended September 30, 2009 were $3,827,636 compared to
$3,394,879 for the corresponding three-month period in the previous fiscal year.
This $432,757 or 13% increase was due to an increase in license and transaction
fees of $534,265, offset by a decrease in equipment sales of $101,508. The
decrease in equipment sales was due to a decrease in sales of approximately
$96,000 in business center equipment and approximately $77,000 in e-Suds
equipment offset by an increase of approximately $71,000 in e-Port vending
equipment. Sales under the new Quick Start Program made up approximately
$710,000, approximately 52%, of the $1,346,134 in e-Port equipment sales.
The increase in license and transaction fees was primarily due to the increase
in the number of units on our USALive® network.
In
regards to license fees, as of September 30, 2009, the Company had approximately
57,000 devices connected to our USALive® network as compared to approximately
42,000 devices as of September 30, 2008. In addition, our customer base
increased with approximately 75 new e-Port customers added since June 30, 2009,
totaling approximately 600 customers at September 30, 2009.
In
regards to transaction fees, during the quarter ended September 30, 2009, the
Company processed approximately 7.4 million transactions totaling over $14.6
million as compared to approximately 4.7 million transactions totaling over
$11.6 million during the quarter ended September 30, 2008, an increase of 57% in
transaction volume and 26% in dollars processed.
Cost of
sales for the period consisted of equipment costs of $1,309,356 and network and
transaction services related costs of $1,488,157. The increase in total cost of
sales of $306,043 or 12% over the same period in the prior year was due to a
decrease in equipment costs of $124,488, offset by an increase in network and
transaction services related costs (transaction supplier charges) of
$430,531.
Gross
profit for the three months ended September 30, 2009 was $1,030,123, compared to
a gross profit of $903,409 for the corresponding three-month period in the
previous fiscal year. $22,779 of the increase in gross profit related to
equipment sales and $126,714 of the increased gross profit related to license
and transaction fee revenue. During the same periods, percentage based gross
profit increased to 26.9% from 26.6%. Percentage based gross profit on equipment
sales increased from 30% to 32% primarily due to an increase in the profit
margin of e-Port vending equipment sales as a result of lower production costs
primarily due to offshore production. Percentage based gross profit on license
and transaction fees decreased from 22% to 21% as a result of increased
transaction supplier charges.
Selling,
general and administrative expense of $3,565,778 decreased by $873,755 or 20%
primarily due to decreases in compensation and benefit expenses of approximately
$830,000, and travel and entertainment expenses of approximately $59,000. These
reductions were offset by a net total increase in other expenses of
approximately $15,000. The overall decrease was due to cost reduction measures
taken by the Company during the third and fourth quarters of fiscal year 2008
and during the third quarter of fiscal 2009.
Compensation
expense decreased by approximately $830,000 primarily due to decreases of
approximately $641,000 in salary expenses, approximately $120,000 in long term
incentive program expenses, and approximately $69,000 in employee benefit
expenses.
The
quarter ended September 30, 2009 resulted in a net loss of $2,926,199 (including
approximately $0.5 million of non-cash charges) compared to a net loss of
$3,853,895 (including approximately $1.1 million of non-cash charges) for the
quarter ended September 30, 2008.
Liquidity
and Capital Resources
For the
three months ended September 30, 2009, net cash of $2,826,614 was used by
operating activities, primarily due to the net loss of $2,926,199 offset by
non-cash charges totaling $545,934 for transactions involving the vesting and
issuance of common stock for employee and officer compensation, bad debt expense
and the depreciation and amortization of assets. In addition, the Company’s net
operating assets increased by $446,349 primarily due to an increase in finance
receivables, of which $689,388 of net cash was utilized during the quarter to
lease e-Ports to customers under the Quick Start Program. This increase was
offset by a net decrease of $243,039 in the Company’s other operating
assets.
The
Company received cash of $12,792,836 in financing activities during the three
months ended September 30, 2009 due to net cash proceeds from the issuance of
common stock under the subscription rights offering of $13,041,332 offset by
debt repayments of $194,834 and the purchase in the open market of $48,272 of
Preferred Stock which was subsequently canceled and retired, and the
cancellation and retirement of $5,390 of Common Stock which had been held by an
executive officer in order to satisfy payroll withholding tax obligations of the
executive officer in connection with shares of Common Stock which vested during
January 2009.
The
Company has incurred losses since inception. Our accumulated deficit through
September 30, 2009 is composed of cumulative losses amounting to approximately
$179,000,000 and preferred dividends converted to common stock of approximately
$2,700,000. The Company has continued to raise capital through equity offerings
to fund operations.
As of
September 30, 2009 the Company had $16,690,469 of cash and cash equivalents on
hand.
Our
cash-based selling, general and administrative expenses during the quarter ended
September 30, 2009 were approximately $3,432,000. Assuming that the Company's
operating assets and liabilities remain constant and its average monthly gross
profit of $345,000 earned during the previous three months ended September 30,
2009 would continue, the Company’s average monthly cash used in operating
activities would be approximately $800,000. Based on the foregoing, the
Company’s existing cash and cash equivalents as of September 30, 2009 should
provide sufficient funds to meet the Company’s cash requirements, including
capital expenditures and repayment of long-term debt, through at least July 1,
2010.
Item
3. Quantitative and Qualitative Disclosures About
Market Risk
The
Company's exposure to market risks for interest rate changes is not significant.
Interest rates on its long-term debt are generally fixed and its investment in
cash equivalents is not significant. Market risks related to fluctuations of
foreign currencies are not significant and the Company has no derivative
instruments.
Item
4T. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
The
principal executive officer and principal financial officer have evaluated the
Company’s disclosure controls and procedures as of September 30, 2009. Based on
this evaluation, they conclude that the disclosure controls and procedures were
effective to ensure that the information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms and to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is accumulated and
communicated to the Company’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
(b)
Changes in internal controls.
There
have been no changes during the quarter ended September 30, 2009 in the
Company’s internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, internal control over
financial reporting.
Part
II - Other Information
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
(c)
Issuer purchases of Equity Securities during the Quarter ended September 30,
2009
The
following table provides information relating to the Company’s purchases of its
Series A Convertible Preferred Stock during the quarter ended September 30,
2009:
Period
|
|
Total
number of shares (1)
|
|
|
Average
price paid per share
|
|
|
Total
number of shares purchased as part of publicly announced plans or
programs
|
|
|
Approximate
dollar value of shares that yet may be purchased under the plans or
programs (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
1 through August 31, 2009: Series A Convertible Preferred
Stock
|
|
|
4,929 |
|
|
$ |
9.00 |
|
|
|
4,929 |
|
|
$ |
543,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
1 through September 30, 2009: Series A Convertible Preferred
Stock
|
|
|
100 |
|
|
$ |
9.00 |
|
|
|
100 |
|
|
$ |
542,979 |
|
Total,
Preferred
|
|
|
5,029 |
|
|
$ |
9.00 |
|
|
|
5,029 |
|
|
$ |
542,979 |
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(1) The
Board of Directors authorized the purchase by the Company in the open market of
up to $1, 000,000 of Common Stock or Series A Preferred Stock through June 30,
2010. All purchases of Common Stock must be in compliance with the Securities
and Exchange Commission’s Rule 10b-18.
(2)
Reflects dollar amount available for purchase of either Common Stock and/or
Preferred stock under the plan as of September 30, 2009.
Item
3. Defaults Upon Senior Securities
There
were no defaults on any senior securities. However, on August 1, 2009, an
additional $382,703 of dividends were accrued on our cumulative Series A
Convertible Preferred Stock. The total accrued and unpaid dividends on our
Series A Convertible Preferred Stock as of September 30, 2009 are $10,625,547.
The dividend accrual dates for our Preferred Stock are February 1 and August 1.
The annual cumulative dividend on our Preferred Stock is $1.50 per
share.
Item 5. Other Information
On
November 2, 2009, our Board of Directors established a Nominating Committee of
the Board of Directors, and approved a Nominating Committee Charter. The members
of the Nominating Committee are Steven Katz (Chairman) and Jack E. Price. The
Nominating Committee identifies and recommends to the entire Board of Directors
for selection any nominees for director whether such nominees are to be proposed
by the Board for election by the shareholders at any annual or special meeting
of shareholders or to be appointed by the Board to fill any vacancy on the Board
of Directors. Prior to the establishment of the Nominating Committee, our
independent directors identified and recommended Director nominees to the Board
of Directors for selection. Shareholders who wish to propose a potential
director candidate to the Nominating Committee may submit a recommendation in
writing to Mr. Steven Katz, Chairman, Nominating Committee, USA Technologies,
Inc., 100 Deerfield Lane, Suite 140, Malvern, PA 19355, specifying the name of
the candidate and stating in detail the qualifications of such person for
consideration by the Nominating Committee. A written statement from the
candidate consenting to be named as a candidate and, if nominated and elected,
to serve as a director, should accompany any such
recommendation.
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Amended
and Restated Bylaws of the Company dated October 19,
2009
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Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
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Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
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Certification of
the Chief Executive Officer pursuant to 18 USC Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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32.2 |
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Certification of
the Chief Financial Officer pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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USA
TECHNOLOGIES, INC.
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Date: November
9, 2009
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/s/ George R. Jensen,
Jr.
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George
R. Jensen, Jr., Chairman and
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Chief
Executive Officer
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Date: November
9, 2009
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/s/ David M.
DeMedio
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David
M. DeMedio,
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Chief
Financial Officer
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